What is Financial Planning?

Financial Planning is about organizing your money and setting goals for the future. We can use the term when talking about private individuals or business entities.

We can also use ‘financial planning’ at the national or governmental level, however, the terms ‘fiscal planning’ or ‘economic planning’ are more common in these contexts.

From a financial adviser’s viewpoint, financial planning involves looking at their clients’ finances and advising them regarding their short- and long-term goals. This typically includes strategies for saving, investing, budgeting, managing debt, tax planning, retirement planning, healthcare planning, insurance planning, education funding, estate planning, and risk management.

In an article published by Forbes, Jordan Tarver (Lead Editor, Mortgages & Loans) wrote the following about the term:

“Financial planning is the process of looking at the current state of your finances and making a step-by-step plan to get them to where you want them to be. That may mean devising a plan to become debt-free or figuring out how to save enough money for a down payment on a new home.”

Some Questions

Financial planning involves answering some questions about your current financial situation:

  • Where does your money come from?

This is your income – your salary/wages, social benefits, private and/or state pensions, dividends from investments, income from rental properties, and proceeds from sales of assets or business income.

A definition of FINANCIAL PLANNING and illustrations reflecting the concept.
Image created by Market Business News.
  • Where does your money go?

These are your expenses – rent or mortgage repayments, food, utilities, subscriptions, health insurance premiums, transportation costs, child care or education expenses, and those occasional luxuries.

  • What are your hopes for the future?

Do you want to buy a house, save for retirement, fund your children’s education, or build up a fund for something special?

Benefits of Financial Planning

Financial planning offers many benefits. Let’s have a look at some of them:

  • Puts you in control

Knowing where you stand financially is empowering. It keeps you on top of your money, not the other way around.

  • Reduces money-related stress

You are better able to manage debt, more likely to pay your bills on time, and less inclined to experience nasty financial surprises. Less stress means more peace of mind.

  • Helps you reach goals

You are more likely to successfully save for a big trip or a comfortable retirement. Financial planning is about making those dreams a reality.

  • Puts you in the driver’s seat of your investments

Understanding your risk tolerance and investment objectives can lead to better and more effective investment strategies.

  • Provides security for you and your loved ones

The right insurance coverage and policies can ensure that you and your family are financially protected against unforeseen personal tragedies and events.

How to Get Started

If you are interested in financial planning, the best time to start is now. Here is a simple way to begin:

  • Track your money

You need to know what your income and expenditure are – this is crucial. Note down your income and expenses for a few weeks to get a clear picture of where your money goes and where it comes from.

  • Set goals

What do you want to achieve? Write down your short-term goals (like paying off a credit card, saving for a vacation, or building an emergency fund) and your longer-term goals (like buying a home, saving for retirement, or funding your children’s education).

  • Create a budget

A budget is a tool that helps you align your spending with your goals. There are many free budgeting apps out there.

  • Stay on track

Review your finances regularly. It’s okay if it’s not perfect from the start. Like anything else, you will improve with practice.

Integrating financial planning into your daily routine requires dedication and conscious effort. As with any new habit, there’s a risk of overlooking tasks or forgetting to update your records, especially in the early stages. Set regular reminders on your phone or calendar to review and adjust your budget.

Seek Professional Advice

If you feel overwhelmed or would like extra help, you can turn to a financial advisor. They will help you create a detailed financial plan tailored to your specific financial situation, needs, and goals.

To ensure that the advice you receive is comprehensive and unbiased, consider choosing an independent financial advisor—one who is not tied to selling products from any particular company but rather has the freedom to select from a wide range of options that best suit your financial objectives.

Final Thoughts

Financial planning is a long-term commitment – it is not a one-time thing. It changes with your life. It is about putting smart habits in place that can help you achieve financial stability and reach your goals.

If you persevere, you will find it well worth the effort.

Video – What is Financial Planning?

This video comes from our sister YouTube channel – Marketing Business Network. It explains what “Financial Planning” is using easy-to-understand language and examples.